Treating bauxite residue as an alternative source of metals for iron and aluminium industry is an approach to promote circular economy in metal industries. Reduction of metal oxides with H2-based process is an important step on decarbonisation of metal industry. In this study bauxite residue pellets were prepared and were reduced with different H2-H2O gas compositions at different temperatures which yielded with various degrees of reduction. The bauxite residue pellets were made from a mixture of bauxite residue and Ca(OH)2 powders and sintered at 1150°C. Hydrogen reduction was carried out on the oxide pellets using a resistance furnace at elevated temperatures in controlled reduction atmosphere of H2-H2O gas mixtures which resulted in reduction of iron oxides in the pellets. Unreduced and reduced pellets were subsequently heated to 1400°C to study their smelting behaviour using differential thermal analysis (DTA) and thermogravimetric analysis (TGA) technique to investigate the evolution of phases related to slag formation via smelting. Equilibrium module of Factsage™ ver 8.1 was utilised to analyse results of thermal analysis. It was observed that Tricalcium phosphate-β (CaP2O8), Bredigite (Ca7Si4MgO16), Rankinite (Ca3Si2O7), and calcium alumino ferrite (Ca[Al,Fe]6O10) were formed during thermal analysis as intermediate phases. The initial slag formation for sintered and reduced pellets occurred at 900°C which mainly contains calcium and small amount of strontium component. The slag formation rate increases significantly starting from 1100°C when iron oxides started to form initial molten slag phase which then followed by other oxides dissolution in the system. Gas formation was observed at 1180°C and it was found that the gas to be released from unreduced pellets is O2 meanwhile the gas to be released from reduced pellets is SO2 gas. Gas formation rate for both pellets start to increase at 1280°C when the remaining chemically bonded gas start to be released from the system.